Introduction

In order to compete in today's economy countries must consider the ramifications of globalization. This paper investigates the theories, drivers, and the regional trading blocs of economic globalization.

Definition

Investopedia define globalization as the "Name for the process of increasing the connectivity and interdependence of the world's markets and businesses." (Globalization, n.d.). This increasing of the global businesses is based on scientific theories and economic drivers that allow the world's economies to flourish in a free trade environment.

Trade Theories

While no single trade theory explains the exact patterns of international trade, taken together, these theories do make apparent certain important factors. The theory of absolute advantage suggests that countries should specialize in the production and exportation of products in which the country excels. The country should then import the products that it does not have absolute advantage over.

English: An example of absolute advantage.

Globalization

Globalization to the advantage - 2010-09-16

While the theory of comparative advantage states that countries should produce the products that they can manufacture most efficiently and import the products they cannot make as efficiently. This theory suggests that free trade will bring about increased world production and that this trade is a positive-sum game for all participants. The new trade theory suggests that with specialization, the prices of goods are reduced and the varieties of products are increased because countries specialize in the production of certain goods. Another popular theory is that of Heckscher-Ohlin. This theory states that international trade is determined by a country's endowments. This means that countries will export goods that can be manufactured using factors that are abundant in the country. The country will also import those goods where the required factors to produce the product are scarce. (Hill, 1994/2005, p172)

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